I find it peculiar that as 2009 arrived, my monthly payouts from FFRHX have dropped. I also found it peculiar that in January, Fidelity also placed an informational link under "Distribution Posted" to explain how the distribution was computed. I know that rates have gone down, but the change from December 2008 to Jan/Feb 09 was not a gradual change, but rather a substantial change. Does anyone have any firm information about this change substantial change in payouts? Is it possible that they are withholding some of the payouts as a buffer for outflows from the fund, and will pay them later in the year as capital gains?
re "I've wondered that too. I have FFRHX and FAGIX and the later has been much more profitable during the last year and particularly of late."
The reason for that is FAGIX is a junk bond fund and last fall, and again in March to some extent, the perceived default risk caused junk bonds to be demolished. As it became clear we weren't headed for depression, junk bonds (and junk bond funds) have rallied sharply and that performance continues because as the economy appears to be on the verge of recovery the default risk is further fading. Because FFRHX uses short term bank notes its default risk did not approach that of a junk bond. While FFRHX got hit hard briefly when things got so bad at the time of Lehman that it looked like nobody would ever even pay off a loan, it never had the lengthy devastation junk bond funds had so it hasn't been going up now like your junk bond fund is.
re "the risk/reward doesn't make sense. '08 was a FEEBLE performance, & not for a stinking %3.75!"
Actually I'm getting ready to put a large amount in this fund as part of some fixed income I'm investing for an elderly relative. To say '08 was a feeble year means nothing unless you say compared to what. Anything with credit risk got demolished post-Lehman and that went for floating rate note funds and anything that didn't have a Treasury full faith and credit backing like GNMA's or Treasuries.
Well the economy is clearly on a track for a decent if not robust recovery and credit risk is no longer the huge issue it was. Now interest rate risk is. Rates are certainly going to rise even if we don't have much inflation for awhile. So IMO there's huge interest rate risk in any bond fund right now instead of default risk.
I believe some long Treasury funds are even down 17% YTD already due to interest rate risk and the fact that people are no longer fearing a Nouriel Roubini nuclear winter. This fund should maintain a fairly stable NAV as the economy recovers and as interest rates start to rise the yield will rise while you maintain principle rather than in a quality bond fund fund where you should lose principal at the same time your yield rises. Also I like the fact this fund doesn't go overboard on leverage like most others in this class and while a 73 basis point expense ration may not seem a bargain for fixed incom, it is the lowest in it's class (at least if you're not an institution).
I see few good alternatives to this in the current environment as this has a current 30 day yield of $4.45%. Even a GNMA fund with all the interest rate risk you'd take on has its yield down to about 3.8% for Vanguard's and 3.55% at Fidelity. The other places i'm looking at are the Fidelity convertible bond fund FCVSX which is yielding about 4.95% (though you have to search a little to get the yield), and I'm also probably going to put some money in a good junk bond ETF like HYG because while there will still be interest rate risk with it, credit spreads on junk bonds still have a way to come in as the economy strengthens and that should mitigate if not overtake any interest rate risk.
This is one of the most challenging times for fixed income investing I've ever seen and it requires a lot more analysis and thought than usual. My personal portolio is mostly in equities and I'm surprised to see fixed income is not that much easier at this moment. The days of having the alternative of just simply dumping a lot of fixed income money into something like a Vanguard GNMA or the like as a default for those who don't want to think too much no longer applies.
Remember, these rates "float" i.e. they change every six months or so. The overall trend in rates has been down for the last two years. Banks don't want to pay any more on these debts than they have to. When rates start going up, banks will have to pay more and these payouts will increase. It's all cyclical. But I too have trouble with how Fidelity advertises the return on this and their other funds. Much more of a marketing gimmick than the truth.
the reason for the drop is that the debt was purchased at a discount, but the discounts are narrowing and as a result, the capital returns and the yield from the debt is reduced from a lower ytm.
Their "Premium Service" employees are less knowledgeable and helpful than than WMT's, with increasingly few exceptions. By the way, their flagship electric utility fund (FSUTX) pays out 2%, though its components yield 4 1/2-6%...
Good question. I too have been concerned that the payout has dropped to around the equivalent of a 3% yield. At the same time if you click on Fidelity's Fast Quote for FFRHX, you will see they announce a 30-day yield of 6.17%. This is almost false advertising. When you are looking for a decent cash flow from a bond fund, the announced 30 day yield is very important.
I concur with your concerns. I called Fidelity a couple of weeks ago on this issue and got a strange answer. The yield they post is NOT an historical yield nor is it a future expected yield, but it is the 'SEC calculated yield'. I could not get a satisfactory answer regarding how I could determine what kind of payout I could expect in the near term. I suggest you give them a call as well as see if you get better results.